Interest rate commentary for 11 July – 15 July 2016
Yields rose around the globe last week and Australia was no exception. Markets were somewhat calmer about the post-Brexit world and this was expressed in terms of higher yields and higher equity markets. Global bond yields rose although in some markets they became less negative!
|90d Bank Bill%||1.96||-0.01||1.97||1.96|
|Aust 3y Bond%*||1.52||0.06||1.57||1.46|
|Aust 10y Bond%*||1.99||0.09||2.05||1.88|
|Aust 20y Bond%*||2.47||0.08||2.50||2.38|
|US 2y Bond%||0.67||0.07||0.69||0.65|
|US 10y Bond%||1.55||0.19||1.55||1.43|
|US 30y Bond%||2.26||0.16||2.26||2.14|
|* Implied yields from Sept 2016 futures|
Australian government bond yields were higher as business conditions and confidence improved. Activity in the semi-government bond market picked up with both QTC and SAFA announcing or completing transactions. Spreads to government bonds were mostly narrower.
This week saw cash rate markets re-trace some of their post-Brexit lows but markets are still factoring in at least one rate cut this year. See our chart which tracks what the markets are factoring in.
Term deposit rates have remained remarkably steady despite a lower official rate. APRA wants banks to fund loans with term deposits so competition among the banks for funds has intensified. There are still attractive yields to be had and our comprehensive tables outline the latest offers on terms between 1 month and 5 years.
The big movements in corporate bond markets this week were seen in the price of credit default swaps. CDS are a bellwether sign of investor sentiment and this week saw the biggest move for a considerable period. In debt issuance the absolute number of issuers coming to the market increased, although the size of the transactions was down.
Recently-issued hybrids had another good week, as did most securities in this sector. Our key story this week asks whether the market has run too hard too quickly and hybrid yields are too low compared to share dividends. Our yield tables and charts in the Hybrids and Notes sections provide a valuable tool for readers to sort the wheat from the chaff.
We hope you enjoy reading this week’s YieldReport.
June 2016 monthly interest rate commentary
Bond returns were again tremendous in June, adding to the best 6 monthly returns seen in 20 years. Bonds around the globe hit record lows and every Japanese bond out to 40 years was sitting below 0.10% and most had a negative interest rate. German and US bonds made new lows as did Australian 10 year bonds which fell below 2.00% for the first time.
The UK EU vote was the event which everyone knew was coming but few countenanced the “Leave” camp would actually win the vote. It was said that the UK government had not even prepared a plan for Brexit, so confident it was of the “Remain” vote winning. Expert after expert lined up to scare voters about the doomsday scenarios which would occur should the UK vote to leave…..Click here to read more
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